Sharia-compliant Kerala firm may be violating rules, reveals Dr Swamy’s RTI enquiry

published on October 9, 2013

The Kerala government-promoted NBFI Cheraman Financial Services (CFSL) appears to be functioning in violation of RBI directives, which prohibit it from claiming to be a Sharia-compliant fund. The website of the NBFI mentions that the company operates in a Sharia-compliant manner and intends to become a one-stop shop for all financial products based on the Sharia concept.

The RBI has strictly prohibited use of terms like interest-free finance, participatory finance, profit-sharing and Islamic banking, either explicitly or implied.

The Kerala State Industrial Development Corporation (KSIDC) has an equity share of 11 % in Cheraman Financial Services, which obtained the NBFI status in July 2.
State industries minister PK Kunhalikutty and APM Mohammed Hanish, MD of CFSL, have said on record that the business model of the NBFI is based on interest-free financing, based on the economic principles of Sharia.

RBI in a reply to an RTI application filed by BJP leader Subramanian Swamy stated the central bank has not given licence to any financial entity in Kerala to run an Islamic Bank, according to the religious Sharia code. All entities registered with the RBI have to comply with RBI Act, 1934, and Banking Regulation Act, 1949.

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